Keeping in the Groove at Infosys

Infosys co-founder Nandan Nilekani talks to BusinessWeek.com about the management reshuffle, and competition at home for the outsourcing giant

Bangalore-based Infosys Technologies is India's second largest IT services company and one of India's national champions in global outsourcing. Its remarkable rise over the last couple of decades and its high-speed performance make this NASDAQ-listed stock one of India's most closely watched companies. On Apr. 13 the company reported a 56% jump in net profits for its just-ended fiscal year on a 46% increase in revenues to $3.6 billion—though it missed its fourth quarter sales target.

At the same time, the company shuffled its top management team. Company co-founder Nandan Nilekani, who has served as Infosys' managing director and chief executive for the past five years, is moving to a new role as co-chairman of the board. The current chief operating officer and president, Kris Gopalakrishnan, will assume his role in June. Nilekani spoke to BusinessWeek's Nandini Lakshman about the changes and the company's outlook

What triggered the management changes?

It has been part of our endeavor to create and institutionalize resilience to leadership challenges. We've built a lot of strategies and processes to enable us to do that. We've always been part of a collective leadership. We felt that with N. R. Narayana Murthy (also a co-founder) as executive chairman and me as CEO, we worked well in tandem. So when Murthy became the non-executive chairman in August, 2006, when he turned 60, we said that we need to go back to our old model of having two people working together. Infosys has definitely grown beyond the individual.

What do you attribute your good results to?

In broad terms, it is the phenomenon of globalization of services, and the broad, secular trend is continuing. Many more companies are taking advantage of this, as this is not about cost but timeliness, innovation, and international property rights. They've realized the benefits and it continues.

Infosys in particular has been investing in brand-building globally, in terms of infrastructure, IP [intellectual property], and human capital. We have the largest university in Mysore. It all adds up. We are at a point of intersection of this mega-trend. We were $1 billion in 2004, $3 billion in 2006 and 2007, and will be $4 billion in 2007 and 2008. All this has come from just organic growth.

Your guidance for the next quarter is pretty muted. What's your outlook for this 2007?

We haven't said it's muted, but everybody else is saying so. We grew at the rate of 28% to 30% in dollar terms because the equity base was diluted by 3%. That's because our employees exercised their employee stock options (ESOPs). So our earnings per share (EPS) growth was lower, but we've maintained our profit. We've also entered Europe. As a result, scale and size have benefited us as we were able to spread our costs around.

Aren't you facing more competition from the likes of IBM, EDS, and local players such as Tata and Mahindra in consulting and certain outsourcing segments?

One advantage for us is that we are not in their business, so there's no conflict of interest. That's why people tend to rely on us.

But Infosys Consulting is struggling. And don't you face problems both consulting and trying to sell your clients software products?

Yes, consulting has made a loss as a stand-alone business. But when you combine it with Infosys Technologies' downstream products, it isn't bad. We are expected to sell software products, and we make it clear to our clients. It's all about strategic advice and delivery solutions. The challenge here is to grow the business.

IBM has bagged some big telecom outsourcing deals in India recently. Worried?

We are not even in that market space. Our strategic model is globalization of services. The telecom sector is big business for us globally, but we consciously didn't participate in the domestic business.

Where does Infosys go from here?

We have not only become resilient to change, but we are also seen as delivering products that our clients want. Global legacy players respond to our agenda and we continue to be mission-critical partners for our customers.